Portugal: PE and Non-Discrimination Regarding Domestic Relief for Double Economic Taxation

Abstract

This article examines a Portuguese decision on the application of a tax treaty's non-discrimination clause to extend the domestic relief available under domestic law to a person that, according with the wording of such clause, would be excluded from it.

In this case, the author believes that the decision is adequate. Non-discrimination clauses will always raise issues, regardless of the settings and standards in which they are applied. Nevertheless, their insertion in legally binding documents has effects and they should be acknowledged by the courts once the required standard of comparability is achieved.

Furthermore, the comparability between PEs and companies is quite straightforward in this case. Although only companies have legal personality: (i) both PEs and companies are taxed on an unrestricted basis in Portugal and, more specifically, (ii) both are fully taxed in case of received profits. Reserving the tax incentive to companies would indeed be an infringement of the treaty's non-discrimination clause.

The (academic and judicial) authority of the decision could be further strengthened if the Arbitration Committee had considered the OECD Commentaries or even foreign court decisions on the topic. The committee also had no perspective on the eventual dimension of the case, which, considering that jura novit curia and in accordance with the principles of supremacy, direct effects should at least be considered. Nonetheless, if this issue is interesting from an academic standpoint, such consideration would most likely result in a request for a preliminary ruling, leading to (unnecessarily) delaying the decision, since the three referees found enough comfort in the PE non-discrimination clause enshrined in the treaty to make the right decision.

Keywords: Taxation, Tax law, European taxation

JEL Classification: K33, K34, F13, E62, D78, E62, F02, F23, F42, H20, H22, H23, H25, H26, H87, O19, O23, O24